Creating a Budget

As we kick off another new year, it's the perfect time to check off a popular resolution: creating a budget.

When monthly expenses begin to pile up, it's easy to ignore budget planning and simply hope that your monthly income covers all your costs and leaves a little extra for your savings account, too.

By taking the time now to map out your planned expenses for the year, you can make sure your income covers all your costs, while giving you the flexibility to save for emergencies or to treat yourself and loved ones. 

Creating a budget may sometimes seem overwhelming, but know that we're here to help. Check out the tips below to help make sure you're making the most of your hard-earned money.

Calculate Your Income
The first step to creating a budget is calculating how much money you earn each month. Typically, this amount is your monthly net income (the amount of money you earn after taxes). However, it may also include government benefits, child support, or income from rental or investment properties.

Once you know how much you earn each month, you can start to determine the best way to allocate those funds.

Determine Your Expenses
Once your monthly income has been calculated, you'll need to determine and categorize your monthly expenses. Often, these are sorted into two distinct groups: "needs" and "wants." Needs represent costs that you have to pay every month, like housing, vehicle payments, utilities, insurance, groceries, prescription medications, etc. Wants represent costs like dining out, entertainment, and vacations.

You should allocate funds from your monthly income to cover your needs first, but it's a good idea to plan for your wants. If you cut wants out completely, you're less likely to stick with your budget, and financial planning can begin to feel like a punishment rather than a goal.

One of the easiest ways to create a budget is to follow the 50-30-20 rule. It says you should spend 50% of your monthly income on needs, 30% on wants, and 20% on savings. As necessary costs continue to rise, it may not be possible to adhere to these numbers, but this rule can provide a basic outline to help you start the budgeting process.

Savings
It can be tempting to spend your monthly income solely on needs and wants. However, saving at least part of your income can help you maintain better financial health and protect you from unexpected expenses in the future.

Setting money aside for savings can help if an emergency arises that requires extra funds. However, your savings doesn't need to be reserved for emergencies and unexpected expenses alone. Once you have a healthy nest egg of funds, your savings can be used for vacations or other fun expenses you wouldn't otherwise spend money on.

Reach Out to Us
Stop by your local OHecu branch, where we can discuss and identify the best savings account options to help with your budgeting goals. We also offer free resources through Practical Money Skills to help you budget smarter and keep more of your hard-earned money in your pocket. We look forward to seeing you soon!